Testing for optimality in job search models

G.M. Koop, D. Poirier

Research output: Contribution to journalArticle

Abstract

Models of search in labor markets are potentially of great use for policy analysis since their parameters are structural. However, a common feature of these models is that an assumption of optimal behavior on the part of agents is necessary to achieve identification. From a classical econometric perspective, this means the assumption of optimality is untestable and, if optimality is not imposed, it is impossible to learn about the unidentified parameters. This paper argues that Bayesian methods can overcome both of these problems. In particular, we discuss testing optimality in stationary job search models with reservation wages. Learning about economically meaningful quantities such as the discount rate and risk aversion, not identified by the data alone, is considered.
Original languageEnglish
Pages (from-to)257-272
Number of pages15
JournalEconometrics Journal
Volume4
Issue number2
DOIs
Publication statusPublished - Jun 2002

Keywords

  • bayesian
  • reservation wage
  • SIR
  • posterior simulation
  • statistics
  • employment
  • econometrics

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